Shift4 Payments, Inc. (FOUR) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Shift4 Payments First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session [Operator instructions] I would now like to hand the conference over to your speaker today, Sloan Bohlen, Investor Relations. Please go ahead.

Thank you. I'd like to welcome everyone to Shift4's earnings conference call for the three months ended March 31, 2021. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals and objectives; the expected impact of COVID-19 on our business and industry; including that with respect to the economic recovery, increases in vaccination rates and the reopening of the country and any volume recovery by us; gateway penetration and spend seen by our gateway merchants; expectations regarding new customers, acquisitions or other transactions; and anticipated financial performance including our financial outlook for the year ended December 31, 2021. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2020, as updated by our quarterly report on Form 10-Q for the three months ended March 31, 2021 and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events caused our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the company's earnings release, which can be found on our Investor Relations website at investors.shift4.com. And with that let me turn the call to our Chief Executive Officer, Jared Isaacman.

Thank you, Sloan. Good morning and thank you all for joining us. If you recall from our last quarterly earnings update in early March, we were beginning to see signs of strong volume recovery across much of our merchant base. I'm happy to share with you all this morning that these volume trends exhibited during late February, continued through March, resulting in a reasonably strong first quarter. Just to reiterate at Shift4, we are an integrated payments company that focuses on some of the most demanding and complex environments in commerce. This includes a lot of larger restaurants, hotels and hospitality merchants as well as specialty retailers and sports and entertainment venues. We saw some nice year-over-year volume growth in Q1 but the majority of our growth throughout this pandemic has been as a result of new and larger merchants joining our platform. While our performance has been strong, most of our customers are in fact still operating below pre-pandemic levels, which is important on two accounts: one, our value proposition that's fueled year-over-year revenue growth for 21 consecutive years has proven to be compelling in the best and worst of economic times; two, as the country continues to reopen, we expect considerable volume recovery from our existing customers as well as from all the merchants joining our platform every single day. With that stated, let me provide a brief overview of our first quarter performance. First, we reported another record quarter of end-to-end payment volume, totaling nearly $8 billion, which is up approximately 30% over the same period last year. As I mentioned in my Shareholder Letter, we actually had some tough comps, as January and February of 2020 were up over 50% year-over-year compared to 2019 levels. The volume growth was not isolated to this past quarter. April has also seen impressive sequential growth, as Taylor will talk about in just a bit. We don't generally focus on our gateway-only volumes on this call but it's also a very encouraging indicator that our annualized March gateway volumes totaled $150 billion, which is moving closer to our pre-COVID-19, 2019 volumes. Put more plainly, our gateway merchants are seeing a rapid recovery in spend already this year, in spite of colder weather in much of the Northeast and COVID-19-related occupancy restrictions. I mentioned this also to address frequent questions from our investors, as to how much of our gateway-only volume remains, considering it's one of the easiest growth opportunities to quantify inside of the Shift4 story. While we've exceeded early expectations on gateway penetration, there's still a long way to go clearly. Volume growth drove record revenue of $240 million and gross revenues less network fees of $97.5 million, which is up 23% compared to just a year ago. What many may not know about our business is that in addition to typically being the lowest volume quarter for us on a seasonal basis, Q1 is also typically the lowest on a net spread basis, which Brad will talk about more later. Said plainly, we're very encouraged by how Q1 sets us up for the remainder of the year. Our adjusted EBITDA of $22.2 million was up modestly year-over-year but also included $7 million of accelerated expense and a one-time charge, which Brad will expand upon. As I mentioned in my Shareholder Letter, I do think it's important to explain why we didn't see more flow-through to adjusted EBITDA and it's really attributed to two factors. First, our first and only notable COVID-19-related business closure, which was an approximately $5 million risk loss, attributed to the business failure of a specialty retailer. This is the only notable risk loss in my 21-year history with the company. And while we do expect some recovery, we have chosen to expense all charges at this time. Second, we are continuing to make investments in talent and systems to ensure the scalability and experience for our merchants partners and employees. As a company, we have performed well during some of the best and most difficult times imaginable for our customers, partners and employees. As we look at Q1 performance and the end-to-end volume contribution from April, we are very encouraged and excited about the year ahead. We see significant runway both from the recovery of the economy, as vaccination rates increase, as well as new market share gains, as our value proposition continues to resonate and win. As many of you know, Shift4 is a company that has a hard time sitting still, so I'd also like to give you a few updates on some strategic initiatives that continue to accelerate our growth. In October of last year, we made a relatively small investment to acquire a professional services company that specializes in supporting some of the most recognizable merchants in the hospitality industry. Our objective was to use this world-class team to further enable our capabilities and to allow our software partners to lean on us more, while engaging the largest and most sophisticated hospitality merchants. Since that acquisition, we've seen a 50% increase in end-to-end merchant production from these market segments. You may have seen our announcements regarding Petco Park in San Diego or my personal favorite Junior's Cheesecake. These are just two examples of the accelerated growth this capability has afforded us in a market in which we were already performing reasonably well. Our eCommerce platform Ship4 Shop is also off to a very promising start. Since our acquisition in November of 2020, we worked very quickly to deploy enhancements, implement a disruptive go-to-market pricing model and launched a promotional campaign to help shine a spotlight on this great platform. You will find in our Shareholder Letter that the traction generated by these efforts has exceeded our initial forecast. To date, we've added 21,000 incremental Web stores which more than doubles the footprint of the business. As a reminder, doubling the customer count of Shift4Shop was our first-year objective and it was surpassed in less than six months. I also want to emphasize that the Shift4Shop acquisition has given us good reason to explore and invest in technology like capital offerings, buy-now-pay-later programs, cryptocurrency acceptance, crypto settlement that would have really been a stretch for us to incorporate in our historic base of customers. While it's only been two months since we announced our most recent acquisition of VenueNext, we are already finding early success. Entertainment venues and theme parks across the country are eagerly seeking to enable a fan-first technology, contactless payment method and adjust workflows for a more mobile-centric experience. As you may have seen in our Shareholder Letter, we're proud to count the Washington National as a new customer. Based on our visibility into the pipeline, we expect there to be many more. Lastly, I want to comment on the M&A environment. Shift4 has a proven track record of identifying scarce assets that are complementary to our integrated payment strategy and build upon our ambition to provide a unified global commerce experience for our partners and customers. As evidenced by the acquisitions we just mentioned, acquiring these assets can often lead to accelerated growth and valuable diversification. We view the current landscape as ripe for numerous transactions, ranging from strategic tuck-ins to large-scale transformational deals. We are dedicating more resources towards these opportunities, while at the same time remaining disciplined with regard to valuations. And with that, I will turn it over to Taylor Lauber, to comment on some of our quarterly trends and other strategic updates.

Thanks, Jared and good morning everyone. As Jared mentioned this was quite a strong quarter for us. $8 billion in volume not only represents a record, but it's almost $1 billion higher than our previous record quarter for volume. To provide some context on why that's so exciting, the first six weeks of the quarter were actually quite suppressed. Additionally, we exited March with roughly 9% more active merchants than in December of 2020. Because this is our first Q1 as a public company, I think it's worth setting the stage a bit for how Q1 would influence a typical year for us. Prior to COVID-19, we would expect Q1 to be our weakest quarter on both a volume and net spread basis. The holiday season hangover as we like to call it often results in reduced consumer spending across a less favorable mix of merchants and card types. In a normalized environment, we'd expect roughly 20% of our annual volume to occur in Q1. As the weather warms across the country, travel and consumer spending typically increases significantly in Q2 and Q3, which are historically our strongest quarters. We would characterize the most recent quarters exhibiting typical seasonal trends, but still significantly impacted by COVID-19. As you can imagine, we are very optimistic about the exit rates experienced in Q1 and how this positions us for the remainder of the year. Our April end-to-end volume continued this growth trend. It was the highest month in our history and 4% above our very strong March. While there's some seasonal factors that can influence volume week-to-week, we've seen a consistent sequential increase in volume and active merchant counts. For example, last week, we saw end-to-end volume of $830 million and active merchant counts 2.5% higher than the last week in March. The expansion of our total addressable market has also fueled an expansion in our pipeline of desirable M&A transactions. We've made the decision to launch Shift4 Ventures as a means of capitalizing on earlier-stage opportunities we've been seeing. While we did not expect this to be a significant portion of our balance sheet, we do believe that these partnerships will involve both capital and collaboration. We are specifically pursuing investments, where we can have a role in helping drive growth in the business through our technology and customers. In April, we've invested in Sightline Payments which is a unique digital commerce platform for casino resort operators. Jared mentioned the traction we're seeing with the three recent acquisitions. I think it's important to note that while these wins are encouraging, they don't influence our decision on the revenue guidance which Brad will touch on in a moment. I think that's worth repeating. While we do include the increased operational expense from acquisitions, we do not include the revenue synergies until they are realized and more predictably modeled. We will provide regular updates on these new merchant cohorts as they mature and we look forward to doing that. And with that, I'll turn it over to Brad.

Thanks, Taylor. Just like last quarter, I'm going to reference a few pages in the back end of our earnings material that will highlight several of the metrics that we're going to talk about. So for the first quarter, we generated $239.3 million in gross revenues and $97.5 million in gross revenue less network fees. Both of these figures represent our highest quarterly revenue production in the company's history. The $97.5 million in gross revenue less network fees represents a 23% increase over prior year, and a 10% increase compared to last quarter. The year-over-year variance was driven by a 35% increase in net processing revenues, driven mostly by new merchants' onboarding and the continued recovery in consumer spending across our merchant base. First quarter net processing revenue made up 61% of our gross revenue less network fees, up from 56% from the same period last year. Our gateway and SaaS other revenue streams, both grew modestly year-over-year due to continued recovery of our gateway merchants and the impact of our recent acquisitions. Net spread in the quarter was approximately 75 basis points, which represents an 8% drop from prior quarter and 4% increase over prior year. The drop from Q4 of 2020 was driven by a combination of factors including some seasonal increase in travel and higher than normal debit card usage. I'll note that April blended spreads have increased to approximately 78 basis points. This pattern is typical for our business and while we do continue to expect blended spread compression as a result of boarding larger customers Q1 is typically lower than average spread we experienced throughout the year. We reported $22.2 million in adjusted EBITDA for the quarter. If we apply consistent accounting treatment to our equipment leases in 2020, these results are largely consistent with prior year. As Jared mentioned in his opening comments, we have two extraordinary items worth mentioning that are affecting our adjusted EBITDA within the quarter. First, we recorded a loss of $5.2 million as a result of a multi-location specialty retailer that abruptly closed as a result of a business failure during the quarter. These losses are the result of customer chargebacks for pre-ordered goods not delivered to consumers. We do believe that some of the balance to be recoverable as we work with the business administrators, but we have chosen to record the maximum amount of Shift4's potential liability. Any amount recovered would positively impact a future quarter. Second, given the faster than anticipated recovery in the merchant base, we elected to accelerate approximately $2.3 million of operating expenses that were previously budgeted for future quarters. These expenses primarily relate to increased software licenses to aid in the scaling of certain platforms and temporary staff to assist in customer boarding activities. Both of these events are isolated to Q1 and should not be considered contributors of ongoing expenses. Our first quarter results represent an adjusted EBITDA margin of 23% against gross revenue less network fees. The impact of the previously discussed nonrecurring loss in our OpEx acceleration decreased margins in the quarter by approximately eight percentage points. As we mentioned in our Q4 earnings discussions, we invested approximately $21 million in the first quarter on the integration and rebranding of Shift4Shop, a portion of which was done in cooperation with the Inspiration4 and Shift4Shop entrepreneur contests. These expenses have been treated as non-recurring costs within our financials and are added back for EBITDA purposes. We did not execute on any significant capital transactions in the quarter. However, the adoption of ASU 2020-06 did trigger a balance sheet reclassification related to our outstanding convertible debt offering. In our Q1 balance sheet, you will notice $110 million has moved from equity to debt related to that adoption. With regard to liquidity, we ended 2020 with $845 million in cash and $99.5 million of available capacity on our revolving credit facility. Now, I'll move on to guidance for the year. Given our performance in the first quarter, we will be increasing our full year guidance for each of our KPIs. Specifically, now we expect full year end-to-end processing volumes to be between $44 billion and $46 billion. These volumes would drive gross revenues between $1.2 billion and $1.3 billion and gross revenue less network fees between $480 million and $490 million. The revised range for adjusted EBITDA is now $165 million to $170 million. The update to adjusted EBITDA does include the impact of the risk loss and cost acceleration that was mentioned previously. If we were to normalize our guidance to exclude these charges our adjusted EBITDA margin on the incremental gross revenue less network fees would be approximately 50%. With that, I will turn it back to Jared for some final comments.

Thanks Brad. And I think this is a good time to open it up for questions.

[Operator Instructions] Your first question comes from the line of Tim Chiodo with Credit Suisse. Your line is open.

Thanks a lot. Good morning and thanks for taking the question. I wanted to talk about some of your underlying organic share gains. So, in the past, you've talked about some of the very, very attractive payback periods that you have meaning essentially implying nine months, eight months sometimes shorter meaning very attractive LTV to CAC. And you've talked about at times selectively increasing CAC because the numbers still work it's still very attractive. I just wanted to see if you could touch on that? If you're employing that strategy to some? If you're seeing great success with it? And really just any update on that broader topic of your attractive payback period. Thanks a lot.

Yes sure. Hey Tim it's Taylor. Good morning. It's a good question. I think we really started down this path in earnest I want to say it's Q3 and Q4 of 2020. And just to remind sort of everyone else on the call our payback methodology was pretty standardized across the company. It would result in anywhere between kind of a six- and nine-month payback as you mentioned with our standard incentives and hardware deployments across our merchant base. But what we found was that larger merchants would actually respond less favorably to financial incentives and much more favorably to technology incentives that actually cost less in some cases. So, we went down this path of modifying how we approach each of these segments and I'd say it's worked tremendously well. You'd see that evidenced by the increase in hotel volume that we saw over the past really two quarters. We boarded more hotels during that period -- during the last six to nine months than in any other point in our history. And again, this is when hotels are pretty significantly impacted. Now, I don't want to make it too much about financial engineering. It's really about getting surgical around what's going to motivate a particular merchant base at a given point in time. So, keep in mind we've got 350 different software suites each of them attracting a different quality of merchant. It can be the front desk of a hotel all the way down to the gift shop inside of a hotel. And the incentives work differently. So we have pushed the lever forward a little bit in aggregate, but it hasn't been about increasing across the board. It's about giving more targeted incentives to higher-quality customers and it's worked well thus far.

Yeah, Tim. Hey, it's Jared here. Just to layer on to it a little bit. It is such a good question. I mean we IPO-ed with really these best-in-class unit economics. And you're right, I mean we lived for several years in these like eight to nine month payback periods from a customer acquisition cost perspective. And that was largely just due to constraints of having five to six times leverage at the time of the IPO. Obviously, since delevered considerably we have a lot of cash. So the question being why don't we just put more of it to work to accelerate growth? I think what Taylor was saying is we're doing it in a number of different ways depending on the target market we're going after. In the case of say our restaurant business like we know we're going to continue to take share within that space by investing more in our research and development technology initiatives. Things like QR codes, contactless payments is what's going to drive customers over to us, just as they did during the pandemic and they're continuing to do so now. In the case of hospitality hotels, it's a combination of solving some pain points that a lot of these legacy -- a lot of these legacy property management systems which still dominate the market need to address. Software database upgrades that support things like phone-based check-in for example. What I would say is we've looked to sports and entertainment for example that's one area where additional financial incentives. This is an industry that was hit pretty hard due to the pandemic. Like they welcome things like sponsorships and such which has absolutely been helping us incorporate our technology like VenueNext like our mobile solutions and payments in that market. So I think the answer is yes, we're just kind of like fine-tuning new strategies based on the verticals that we're trying to conquer.

Okay. All right. That really helps. Thanks a lot Jared. Thanks a lot Taylor. I hope to squeeze in one more. On Shift4Shop the 21,000 new Web stores and I apologize if you touched on this earlier, but could you describe the types of businesses? Are they eCom pure plays? Are they off-line stores or in-store that are expanding online? Is it start-ups? Is it a little bit of mix of everything? Some of your own merchants coming over? Any color there would be great.

It's really a mix of everything. But I would say that for the most part they're pure-play eCom simply because we haven't completed the integration to our online ordering products, our restaurant point-of-sale applications or card-present retail applications. So obviously those are all road map items that we're working towards now. We prioritized in the first quarter, just frictionless onboarding to have that kind of PayPal or Square-like onboarding experience, which is pretty vital for this type of market. So the fact that we haven't integrated some of our card presence technology yet or it's in the works now would suggest that most of the customers who are joining are just looking for a Web store at a really reasonable price point. As we've mentioned, we choose to monetize entirely through payments instead of SaaS or set-up fees or premium marketplaces and such that others have. It's kind of this whole like Bags Fly Free but in our case it's like "Why pay rent for your online business?" marketing campaign. So that's what we're attracting customers with today. When we look at them every day it's all across the spectrum. But I mean generally you're talking -- in terms of the products and goods being sold but it's -- these are predominantly eCom players. And I would say, it's weighted way towards share gain than it is existing customers.

That’s perfect. Thank you so much for all that color guys. Appreciate it.

Your next question comes from the line of Mike Colonnese with Bank of America. Your line is open.

Hi, good morning guys. Nice to see this level of recovery in the business despite some of these ongoing headwinds from the pandemic here. So just to talk more about the outlook here. So can you discuss some of the underlying assumptions embedded in the revised outlook for end-to-end volume growth this year? What are you assuming for same-store sales growth end-to-end conversions as well as new merchant wins? And also the expected contribution from recent M&A?

Yeah. Hey, Mike, this is Brad. I'll take part of that. And Taylor perhaps, if I can tag team some of it. So if we think about yeah, the guidance we've laid out, our biggest starting point is our current trends, right? We've had as we've talked about some pretty substantial recoveries that started in that back half of February. Those trends continued through March and we've actually seen those trends continue into April. So that was our starting point. We do sense -- we build a bit of recovery back into the merchant base. It will come in over probably a 12-month period, but we don't necessarily break it out between all of the different components around same-store sales or new merchant boards. Remember, a dynamic for us is we have really good visibility of our current merchant base. And our current merchant base is still certainly not operating at its full capacity. For all of those merchants that we have boarded in the last 12 months that we don't have that historical data on we're still waiting to see how robust those merchants turn out over time. But I think the key point for you guys in building out your models and understanding our guidance is, it's really a function of where we sit today as March and April have been super strong. But we do sense some additional recovery throughout the rest of the year.

Yeah. And I'll just sort of add a little bit there. So keep in mind that the merchants that joined us last year that always contribute the most growth to the current year. That's just the way the math rolls through right, especially in a year where those merchants were depressed and there's some degree of recovery occurring inside of them. So while we trend merchant production and that's quite frankly the single variable that we have the most confidence in, because we've seen production stay constant sort of throughout pretty wild cycles including the pandemic, we trend that forward. But it's really what's the behavior within that base of merchants that joined us over the last year or two and what's going on there. So I mentioned it on the call, but it's kind of quick. The last month in April was $830 million of all these -- I'm sorry the last week of April was $830 million in end-to-end volume. So you can annualize that and you can get to a certain number. However, if you think about the fact that April is nowhere near the average week in a year for us from a seasonal basis, you can be optimistic sort of beyond that number. So that kind of underpins all right we're going to take our merchant base. We're going to trend them forward. We're going to look at current trends and see what would happen if you annualize those. It points you to a pretty reasonable path to the guidance that Brad laid out. I'd say with your comment regarding M&A we do it in a very methodical way. We take the revenue associated with M&A. In the case of VenueNext, for example, its subscription revenue they were earning prior to our acquisition. And we trimmed that down under the assumption that merchants are going to adopt our platform for payments and we will discount that revenue in exchange for that trade. We also burden our guidance with the OpEx associated with running that business, but we do not model in the volume contribution. So that's going to sound a little bit counterintuitive. And we said, we penalize the revenue of the business for cross-selling, but we don't count the benefit of that cross-sell. That's exactly right, because the profile of these merchants looks different and we just want to let that roll through. So VenueNext -- I'm sorry, Shift4Shop is a phenomenal example where we're carrying the burden of that OpEx. We boarded a boatload of great customers, but we want to let those customers see them and see the volume contribution and the spread contribution of those, before we include that in the guidance.

Very helpful. Thanks, guys.

Your next question comes from the line of Dan Perlin with RBC. Your line is open.

Thanks. Good morning, everyone. I hope everyone is well. I just had a question, probably for Brad. You talked about maybe the progression of spreads and first quarter is going to be the lowest. But you also made mention of, kind of, maybe, some compression throughout the year, as you move to larger merchants. I'm just -- I'm trying to understand maybe the interplay between the larger merchants, I kind of understand, but there's also a lot of this movement towards omnichannel and maybe even what you just described as pure eCom merchants. So maybe can you just talk through a little bit of the dynamics of how the mix shift is going to impact spreads throughout the year and maybe, even, as we think about into the future? Thank you.

Yes, sure, Dan. There's actually a couple of moving parts in here. One is, what you mentioned is, this ongoing kind of migration towards larger merchants. And we've talked about that's probably 1 to 2 basis points a quarter of impact as that mix shift takes place over time. What's becoming evident, although, we assure these people grasp is, also there's a seasonal component as to how spreads normally behave, right? When we went public last summer, we didn't have a full year of kind of normal seasonality to put in front of everybody, because the way of everything behaves in response to COVID. But what Taylor mentioned in his discussion earlier, is the way we're trying to make sure people understand that, there is spread dynamics as well, as far as how the year rolls out. So Q1 will typically be your lower spreads. They will start to boost into Q2 and Q3 and then it will start to come back slightly again in Q4. But what you will see is this ongoing mix shift that will impact that as well. So I think when you think about your model, it's important to note that our Q1 spreads even though they were lower than Q4, they're still up from prior year. So that's still a sign that prior year in 2020 felt that same dynamic for the most part, in terms of it was a lower portion of the year, but we actually grew the spreads year-over-year. But we do see spreads coming up slightly in April; we mentioned that in our previous comments. And that's going to be more of the seasonal pattern you're going to see from Q2 into Q3. We do expect some form of compression, but also some form of seasonality impact as well.

Okay. And then, just kind of a quick big picture one. As you have been moving into these larger merchants, you've done these acquisitions that have taken you into some exciting verticals. I'm just wondering, what the competitive landscape looks like for you guys now? Obviously, you've had a lot of success over the years. But as you've jumped into some of these newer and bigger verticals, I'm just wondering what that competitive landscape looks like going forward? And how you end up competing against maybe some of those other companies that have lower unit cost of process? Thank you.

Sure. So, Jared here, I'm happy to take that. And I think the answer is, it depends on the vertical, right? So we're specialists in simplifying the most complex commerce environments, like that's where Shift4 is a key. So if you were to take hospitality, upmarket restaurants, kind of the core original Shift4 business, nothing has changed in that regard. There's still only really three payment platforms out there that have the capabilities to address these verticals, the 350-plus software integrations and all that version history to compete for a pebble beach or a snowmass sort of quilling pen [ph] or something of that nature. So in that respect nothing's changed in the competitive environment. Obviously, we're growing volume at a pretty wicked fast rate. So we continue to find success in those core verticals. If you look at how we've expanded our TAM and take stadiums, for example, we were very thoughtful. And I should say like, by the way, just our long history in integrated payments, the idea that you can buy an ISV or partner or build the capability to go after certain verticals, all of the consideration that goes into it is not lost on us. So before buying ISV like then we had to size at the competitive landscape and say, "Okay, there are four software companies that pretty much try and compete for the sports and entertainment market, two are very, very legacy and one is dependent on multiple other providers to deliver a solution." That's what gave us the confidence to acquire VenueNext and say "A vertically integrated solution in this market is going to find success and be differentiated." So we can pull the figure on an ISV acquisition versus a pure partner play. So that really is a long way of saying, we have a lot of confidence in our ability to take like substantial share in sports and entertainment venues like we have. I mean, we've been pretty much announcing stadium like every month right now. That funnel is awesome. Now if we want to talk about Shift4Shop and eCommerce, I totally would agree with you. I mean that is a very competitive environment. You're up against $200-billion-market-cap behemoths. But I would say, like our entry into that space was at like a really reasonable rate. As we talked about before, we acquired Shift4Shop on a reasonable EBITDA multiple to give us the capabilities to explore where is a highly desirable vertical, a disruptive pricing strategy. I mean, I don't think, the big guy is going to drop their SaaS pricing strategy anytime soon. I think that would be really hard for them. And our expectation there was not to be the next Shopify necessarily, but to learn and use our entry into eCommerce to justify some investments in some of the things I mentioned before, crypto, capital offerings, things that we never could have done if we just focused on our core markets. So I would acknowledge, yeah, the most competitive environment, that we've entered since the IPO is certainly that turnkey Web store eCommerce environment the Shift4Shop, but like, we're coming at it from an underdog, where we have very, very little to lose.

That's great. Thank you so much

Your next question comes from the line of Andrew Jeffrey with Truist Securities. Your line is open.

Thank you. Good morning. Appreciate taking the questions. Jared, we're at a pretty dynamic point in the economy as we reopen. And I think that, we're about to see a significant ramp in new SMB creation. Can you talk about, how you view Shift4's share of those new SMBs, especially in the context of your partner business that serves merchants that might be using more legacy software? Is there any trade-off -- or legacy point-of-sale systems, is there any trade-off? Like what's the dynamic in interplay between, maybe shares of new business versus the installed base?

Yeah. Andrew, I'm happy to comment. I'm not sure I'm going to totally answer the question correctly there. But just kind of clarify if I get something wrong here. I mean no matter what today still 50% of our production comes from, just winning share of the addressable market and 50% comes from our gateway conversions, which we obviously have a very, very long way to go there with $150 billion-plus of gateway volumes still remains on our platform. And I guess, it's really just what -- where do you pick your positioning in the market to win, right? So there is nothing about how Shift4 is equipped today to win the next food truck away from Square. There is -- we are very well equipped to win the, Junior's Cheesecake or, the TowerGroup or the Hackathon sites. So really look for sure there are a lot of new businesses being created every single day and a lot of them fit within our sweet spot. And when they do, we have a greater chance to win a better right to win, than I would say the competitors that we compete against. And that's what's contributing to all the volume growth, you've been seeing since these IPO to now in the guidance we're providing. Yeah, I think, as I've mentioned in the past with my 10G analogy the market is shifting. These tectonic plates are moving pretty significantly. And legacy merchant acquirers that don't have a mature integrated payment strategy are donating share to those tech-enabled vertically integrated platforms. And you have some on one end of the spectrum that focuses on the extreme simplicity, the simplest aspect of the market like a Square for example that's going to win like crazy on that end. Shift4 has the vertically integrated solutions to cater to the more complex and demanding merchant environment. So we continue to win share in that space.

Yeah. I'd just interpret it, somewhat differently. I just see different lens, on the issue. I think, it's not a function of Shift4 having the legacy software integrations. We have big established merchants. And big established merchants use mature software. It's just a by-product of the type of business they're in. Now with that being said, anytime an interesting piece of innovative software enters sort of the marketplace Shift4 gets a call. And the reason for that is, think about the largest hotel chains in the world anytime one of those hotel chains wants that piece of software in their ecosystem it's a phone call to Shift4 to integrate. So we've got a library of 350-plus integrations that grows constantly. The newer hip cloud-based stuff that might attract an SMB we get the phone call on those just as often. It's just the reality as big established merchants don't adopt that software very quickly. So I would argue, we've got as much of a right to win, the SMB merchant through those software integrations as others with the heavy caveat being that, if a single-piece of software can run your business that is a fiercely competitive market. And one that we're less inclined to aggressively pour into versus the established merchants that we know have high barriers to entry through complex software. And quite frankly, more than one piece of complex software.

Okay. That's really helpful color sort of what I was looking for. And if I could just follow-up with VenueNext and some of these larger venues stadiums you're winning. I assume that's contributing to this really nice volume outlook. What about -- how do we think about yield overtime as perhaps, you've seen these products [Indiscernible] platform?

Look, I'll just hit the first part of that. This is Jared, here. I mean, just to be clear as Taylor mentioned we are not forecasting -- in the revised guidance we provided we are not including any volume as it relates to any of our recent acquisitions. So that would include Shift4Shop and VenueNext. So despite the wins we're announcing, we're just -- we're still getting our arms around the sports entertainment vertical. So I mean, pretty safe assumption that those venues are going to contribute pretty substantial volume, it's just not included in our forecast and to the second part here's Taylor.

Yeah. That's exactly right. So the venue environment is like everything else, we embrace its complex. It depends on the type of venue you're in and the cadence of events within those venues. But I will say, even if you look at the largest stadiums in the country the volume is phenomenal, but it happens on I don't know, I'm not a football fan, but like, some-odd-teen weekends per year. It's really the concerts and all the other things that layer in around that. And that volume is zero not to mention the fact that we don't have a football season going on. We have very modest volume participation if at all quite frankly from VenueNext in any of the numbers we would have signaled. And quite frankly, it's just too early to forecast it out. There is a really interesting trend going on. And quite frankly, one we're going to benefit from tremendously in this space which is -- just bear with me a moment while I explain, VenueNext technology one more time. This is fan-first mobile ordering inside of stadiums. This volume prior to the pandemic was like, 5% to 10% of ordering in a modern stadium would be coming through these applications. Early evidence from theme parks, and sports, and entertainment venues that are open, to some degree during the pandemic, we're seeing 90% of the ordering is coming through these applications. Yes. There's much more modest dependence. So we are tremendously excited about the opportunity. We think there's going to be a massive seed shift towards mobile ordering that -- and the likes of which has never really been seen before. The kiosks that you'd stand in front of behind 15 other people to order your beer or your hotdog is going to go away over time. But it's just too early to put that in the forecast. If you tend us to it, we'd tell you that that's volume we'd expect in probably the second half of 2022.

Again very helpful. And I hope never to stand in line again for sure.

Your next question comes from the line of Chris Donat with Piper Sandler. Your line is open.

Good morning. Thanks for taking my question. I wanted to follow up on the VenueNext one, because it seems just like there's an enormous opportunity there particularly with what you just said Taylor. Is it fair to assume that that whole space of stadiums, theme parks, concert venues, and large resorts has essentially just gone to RFP with the pandemic and you are in discussions with almost every provider? Whereas normally there'd be like I don't know people would look at their point-of-sale system every like five years and now just everyone is looking at it? And is that top of the funnel? Do you have enough like salespeople and things like that to cover all the potential opportunity there? I mean, am I right in saying it's all at RFP right now, or is that a bit of an exaggeration?

Yeah. So Jared here happy to address that. So, first, I mean Brad kind of touched on it in our prepared remarks that we have accelerated some of our OpEx investments. We've actually been pretty open about that since the second half of last year that we're going to invest in talent. I can tell you specifically we invested in talent entrusting up the business development resources for VenueNext, because we are talking to everybody. We're talking to everybody for a couple of reasons here. So number one is to drive more towards a fan-first mobile experience as Taylor referenced previously. This is not just ordering a burger and a beer and having it delivered to your seats, which is long overdue anyway. This is like ordering like your jersey from the merchandise store, going in, taking it off the rack and just walking out without having a way to check that line. This is like integrations to ticket master, so you can buy your seats for the next game. This is potentially gaming integration. So you win your first half bet on a football game and then you use the proceeds to buy food from the concessions. So this is like this is long overdue in this market. And even though there's a couple stadiums out there that maybe embraced this a little early on probably using VenueNext technology, the vast majority are in the stone age. That's one. Second, I mean just from seeing an e-mail if you announced a win in one stadium, every other stadium looks in that direction. It's like, what are they doing, because they don't want to be at a disadvantage. So every time we put out a press release there's like 40 other stadiums that lob inbounds because they want -- they want to know what Raiders is doing or what Petco Park is doing. So the point is there's just like a ton of demand there. And we've absolutely had to press -- plus up these dev resources. This is absolutely going to be a volume contributor for us. We just haven't baked it in the forecast. I mean, if any one of you have gone through anything in Q1. I think some of the first MLP stadiums that were lit up with us only really began contributing either in the last week or so of March or early April. But the opportunity there for sure is pretty exciting. That's why we acquired the business, I mean, I would say like in terms of technology capabilities or just even architecture VenueNext is the sexiest software we've ever acquired or built.

Got it. Thanks Jared. And then just wanted to shift over to something for Brad on a comment you made about higher debit volumes. I'm just wondering if you have any view on if that's the higher debit represents debit displacing cash, or if you're seeing more debit -- like Visa and Mastercard talked about more debit volume in the United States being driven by the stimulus payments and if you have a view on that if that's cash displacement or stimulus payments and higher debit or it's just a seasonal issue?

Yeah. Hey Chris. No I personally think it's stimulus driven. It looks like more of event than a trend to me when you look at the data, how it played out through the first quarter and how it's playing out through the first part of April. I think it's much more event driven than a general trend of credit to cash.

And Jared here just to layer on to that then too because it ties back to some of the spread conversations before. I mean, obviously, there's zero corporate, zero foreign card, zero signature, I mean some of the interchange categories associated with these card types, naturally yield to a higher spread and it's still like relatively nonexistent. So when you think about Q1 and you have this greater percentage of debit, which is pretty much going to be your -- next to PIN debit is going to be like your lowest spread-type transactions will naturally get offset as some of these other -- whether it's business travel or international travel start to resume and these card types be utilizing it.

Understood. Okay. Thanks very much Jared and Brad.

Your next question comes from the line of James Faucette with Morgan Stanley. Your line is open.

Hi. This is Priscilla Russo on for James. Two quick questions for me. The first is to the extent that the economy rebounds faster than expected, how are you thinking about your expense base? And where would you put in the incremental dollars that you capture? And then to clarify on the modeling side, last quarter you guided to 60% gross profit margins. Is that still attainable? It sounds like it is, I just wanted to confirm. That's it for me. Thanks.

Hey Priscilla, it's Brad. I'll take both of those. So on the first one on expense deployment Jared mentioned our number one priority is to make sure we can fuel the top line growth. So that comes in a couple of forms. It's mostly in people. It comes from a BD resource perspective and also some of the back-office functionality around boarding and underwriting et cetera. There are some investments we also mentioned in the earnings -- in the earlier statements around making sure the platforms are scalable for growth. So the two categories I would emphasize are our talent related to sales and onboarding and technology in terms of scalability. So that's where the investments are going to come from. In terms of gross profit, yes, we are still targeting a 60% gross profit number, obviously, influenced in Q1 by that loss. But we certainly see 60% is achievable at the gross profit level.

The other thing I'd mention because Brad talked about sort of scalability, there's also some really interesting innovation trends that we've tried to capitalize on as a result of our recent acquisitions. So keep in mind, while we had some card-not-present volume prior to the acquisition of Shift4Shop, it's really large enterprise merchants leveraging our gateway technology for their own websites. And when -- suddenly when you're in that eCom world, you get a lot of great ideas about what your eCom experience for every merchant should look like whether it's a restaurant, QR code payment experience or it's a Web store or it's like a large enterprise's website. Now layer in VenueNext where we've got fans paying mobile inside of a stadium and you get more. So it's an area where we're very excited. We found more interesting places to invest in R&D than we have in the past where we were a little bit more centric to push and pull of verticals as opposed to a bunch more now. So I'd just layer that on because payments as a product is something that we're spending a ton of time on. And it's been quite frankly really, really interesting when you get all this talent and these different organizations around the table talking about what the Shift4 experience should be like one, two to three years now.

Perfect. Thank you.

Your next question comes from the line of John Davis with Raymond James. Your line is open.

Thanks. Good morning, guys. First, you've given a lot of good color around April trends, but I just wanted to ask maybe a different way. If we were to look at April versus 2019 and kind of compare that to March versus 2019, maybe comment a little bit on the acceleration or if you have those numbers that would be super helpful?

Yes. It's a great question. It's exactly sort of the right place to focus. There's nothing notable about April versus March in a seasonal environment. I think it's the Easter calendar and school spring break calendar that typically defines which of those two months gets the balance of trade, right? So to see an April up reasonably – notably, it's up 4% over March, it's a good sign. To see merchant count or active merchant count up 2.5% April over the last week in March, that's a great sign as well. So those are all encouraging. I would say that the calendar tended to favor March in this case although pandemic impacted. So we see April where it's up we're incredibly encouraged. But really you have to look at the last week that we experienced. The last full week we had is the one that we talked about being $830 million in volume. And then the one I think that is perhaps more encouraging than even our end-to-end volume is the $150 billion in gateway volume in March. Keep in mind that is a cohort, that's much more pandemic-impacted than our end-to-end bucket which includes a lot of restaurants retailers and other things. So to have $150 billion of March gateway volume should give a sense for what the funnel looks like. Remember that was $185 billion on an annualized basis in 2019 and it's $150 billion in March. So as we think about sort of continued merchant production that is perhaps the most encouraging sign because none of us can control when the various -- as the various restrictions lift, when vaccines occur, when optimism grows, but that sign is immensely encouraging.

Okay. Great. And then Brad, maybe a numbers question. If I just look at the increase in the $8 billion in the volume guide for the year for end-to-end and revs up $30 million that implies what 38 basis points on incremental volume. Just any commentary there on what's at play and why you wouldn't see a little bit more revenue flow-through on that incremental volume?

Yes. On the midpoint of the guide, we look at 50 basis points of additional revenue coming in off of that volume. And a 50 basis point number is in line with kind of the larger merchants we've talked about, right? We've talked about gateway conversions coming over anywhere in the 40 to 60 basis point range. So I think somewhere in the middle of that is the right place. But also and a factor in the point Taylor made a minute ago is, we are intentionally kind of eroding some of the SaaS revenue streams in order to convert these over to end-to-end. So there's an upside coming from the volume and call it a 50 basis point spread, but there's also a little bit of degradation on the SaaS and the gateways that those will be flat or come down slightly.

Okay. That makes sense. And then last one Jared, just talk a little bit about the Sightline partnership. You guys made an investment there. It seems pretty interesting. Just curious kind of what exactly it is? And with the investment did you get any sort of processing agreement or any sort of commercial relationship with that investment?

Sure. So I think I can speak a little bit more openly just in general about, what we're doing with our kind of mini Shift4 BC efforts And I'll try and give you what I can on Sightline. I mean that's a pretty strategic relationship. So some stuff we got to just wait for the press release. But I think one in general we created the Shift4 BC effort because we are recognizing just the rapid transformation that's happening in eCommerce right now. We want to make sure we're -- we have not -- we have seat at the table of some early-stage businesses that we think could have an interesting payments opportunity for us in the long run. And that's one reason that brought us the Sightline, but it's bringing us to a lot of other opportunities that we're looking at as well. In terms of Sightline, so like what's publicly out there? I mean this is probably the most important piece of technology in -- that's going to support the rise of regulated gaming in the -- mobile-regulated gaming in the US market. So if you think about a lot of card issuers do not directly authorize gaming-related transactions on their credit cards like a Bank of America or Chase, so essentially an intermediary or something, which is like the Sightline, but then add substantial value in terms of its digital wallet and its integrations into really card-present and card-not-present gaming applications. So there's a lot of volumes that's flowing through that world today and there's going to be a lot of volume flowing through in the kind of years ahead. Now we've said from the start that one of the big kind of home run opportunities we see with VenueNext acquisition is the integration of like sports stadium applications. So like I don't know, hypothetically the Washington Nationals' application, San Diego Padres' consumer application with a like a gaming platform. So that when you're at the stadium, you could make a wager out of a game, you could see the proceeds from a win and then you could use it to spend in a merchandising shop or something to that effect. So that gives you one potential opportunity we're looking at. But in general like we have made the statement before that we are interested in fantasy sports, regulated gaming sports betting. And we are looking to position ourselves strategically to have a seat at the table in that exciting market.

Okay. Super helpful. Thanks guys.

Your next question comes from the line of David M. Togut with Evercore ISI. Your line is open.

Thank you, and good morning. I apologize if this was asked earlier, but in your updated 2021 guidance, did you discuss your expectations for how quickly the stadium payments business comes online for example Petco Park, Nationals -- Raiders' Stadium?

Yes, we did David. This is Taylor. But no worries happy to address it again. The truth is we're just not forecasting any of it. It's too soon. A normalized environment for these is not just that they're sporting events inside the stadium, but it's also full occupancy. And then it's also a series of events around the concerts and things like that. So it's way too early. I'd say where we start to have some confidence is like the back half of 2022. But in a full year guide like this we just don't include it. But we do include the OpEx, because we're going to carry those people through while the world normalizes but we don't include that one.

I see. Any thoughts on sort of baseball policy versus football? I think NFL has said they'll be at full occupancy or at least they'll allow full occupancy this fall?

David, I - this is Jared. I think your question is exactly why we haven't included volume in our guidance. I mean, for sure, look we know there's going to be volume there. Like we already -- we put out a press release almost every month that the stadium has gone live with Shift4 and either VenueNext or one of our other integrations. We absolutely in April seen volume flow through from some of those MLB stadiums that are using our technology. It's just we don't know enough about what kind of the future holds. We know we're going to win a lot of stadiums. We know we're going to capture their volume. We just don't know if rules are going to change and what the occupancy restrictions are going to be. So kind of better when we put out that guidance and said, look, we're pretty optimistic about the year ahead. We're just not including stadiums in it. So, I mean, look, from a fan perspective, I certainly hope that vaccines continue to roll out as they are and that we can get a lot of fans packed in the stadiums in a safe way. But we just don't have enough like kind of visibility in it where it's too early for us in sports and entertainment to kind of make predictions. So I guess this is a really long way of saying that if you see a lot of press releases from us in stadiums, and you know there's a lot of fans going to them and you're watching that on TV and then expect the volume to probably exceed what was in that guidance so we just didn't include any of it.

Yes. This is not over engineered when we put out guidance. I think we'd probably do that internally and then we sort of step back and say, what's the world telling us? I mentioned this before, but the last week in April for us was $830 million of end-to-end volume. That is not an average week in an average year. That is a slightly below-average week in an average year meaning the last week of April from a seasonal basis. So when you simply take that and you multiply it by 52, you get to a certain point and we say, all right. What's merchant production doing? What would any amount of recovery do? And hopefully that brings you sort of inside our guidance process and how we get to where we are. Quite frankly, merchants joining us in a current year don't contribute much. It's actually the merchants who joined the prior year annualizing that contributes the most growth in the year. And then when there's recovery inside of it that's outsized. So, a lot more to come.

That's fair enough and I appreciate all the insights. Just a quick follow-up. Are you seeing any halo effect on kind of new bookings from Inspiration4?

So, I guess, I should probably take that Jared here. So Inspiration4 is -- well it certainly raised the visibility of Shift4, and specifically, the Shift4Shop platform, which was our objective. Obviously, all the marketing and space competition ended several months ago but the production on the Shift4Shop platform has really not slowed down. If you recall just a couple of months ago, we did our year-end earnings. We've provided a Shift4Shop update and said, yes, we think we'll be -- I think that's like 18,000 sites by the end of the year. It was because we believe that production would slow down after the competitions had ended in terms of new merchant sites or new Web stores. And they didn't and we end up exceeding our expectations in a pretty meaningful way. That's Shift4Shop specifically. Now Shift4 the company, yes, I mean, our visibility of these rates to extend, I mean, we are having conversations with customers that we wouldn't have anticipated before. So I think there's a little bit more, I mean, we do a lot of attention to the organization. A lot of people probably didn't realize how big and how much commerce Shift4 touched previously until an interesting new story developed about it. So I mean just speaking for myself, but in the organizations that I'm speaking to whether it's ISV partners, enterprise merchants just really interesting opportunities that are coming our way like some of the investments we've been fortunate to be able to make would not have been possible obviously without that kind of Inspiration4 topic. Sorry, I know it's not very specific, but hopefully it's helpful.

Well good to see. Congratulations.

Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.

Hey, thanks guys. Just a quick logistical question on the comment you made around the merchant growth. It's really obviously great to see the sequential growth in merchant numbers. Is that also including the Shift4Shop merchant base that you've added? And then on a side topic, I'm modeling also, just touch on the -- and if I missed this sorry but increase in advertising and marketing costs in the quarter. Was that just the incremental spending around these initiatives Super Bowl ads or anything else?

Yes. So, I'll touch the first one and Brad can touch the second one. To the extent it is an active volume-producing Web store, yes. But -- and this could -- sort of gets to this sort of part of the, do you include these things in guidance or not, question and why we don't specifically include it in the guidance. The Web store platform is a totally different phenomenon. Our products being -- a gateway conversion contributes volume the next day for us. An established merchant who signs up is contributing volume within a week or two to our platform and its volume and scale. A new Web store, especially sort of an eCommerce-first business is not contributing volume instantly. I mean it is a multi-week effort as they build out their product catalog as they design their website, and then it's attracting customers to it. So, if there's volume being produced, sure, it's included in that number. But I want to caution that the majority of these Web stores are not yet producing volume nor should they be. They're building out their business for the first time.

Right. Okay. Let me take the others on the second part about advertising. You're exactly right. A lot of the -- I mentioned the rebranding of Shift4Shops, a lot of that took place in Q1. The majority of that including that advertising marketing line a little bit of it improved along the way as well. But a lot of that's in nonrecurring kind of onetime stuff for Q4, but you're not going to see repeated going forward.

All right. Thanks. And just a quick follow-up. Jared and Taylor, I guess when we think about M&A, obviously you guys have been successful with a couple of deals so far and you talked about a good environment. But, thinking about what we should expect over the next 12 months or so? Are there things that are that near term in the horizon from your perspectives that are -- that you're excited about? And then, I guess maybe just talk about transformational versus tuck-ins as well what you see in near term? Thanks very much.

Yes. I mean I'm happy to start this off. Jared here, and then Taylor should definitely jump in, because his team's keeping a pulse on the various opportunities we're pursuing on a daily basis. But, I guess nothing really has changed since a couple of months ago. It's really the same story, which is we have an incredible team of professionals that's out exploring opportunities that I would suspect if any one of them was announced people would say, well that was unexpected, because that's kind of our MO over the last five or six years. As we do try and find these off under the radar underappreciated assets that we think we can unlock a pretty substantial integrated payments opportunity inside. And whether that's capability enhancements, so we can continue to win share, accelerate share within our current target verticals or an entry into a new vertical like what we did with sports and entertainment with VenueNext or whether it's expanding our reach into new geographic areas, it's all the same story, right? We're just keeping tabs on everything. And I'd tell you that like the pipeline has what I would refer to as kind of some of those small-ball tuck-ins transactions kind of similar to the last cancel that we would have announced. And it also has a couple of real transformational kind of game-changer deals. It's just an interesting environment right now where we just don't -- we don't want to be pressured to make a decision that we're not going to be happy with from a valuation perspective. It's a really interesting climate. So, we're just trying to stay really disciplined on that. And yes, Taylor feel free to join.

Yes. I would actually say, a bunch has changed, not to sort of contradict it, but just to present a different lens. We get a heck of a lot more phone calls now. Some of that, I would say, is due to our capital position. I'm sure, and as sort of David mentioned, the notoriety of things like Inspiration4 has raised the profile of the business. There's a heck of a lot in our pipeline that we're evaluating. To be skeptical though, I think if we get a phone call about it we should question what our right to win that business is in an M&A transaction. And our right to win will certainly not be that we pay more than anyone else like, that's just not how we do M&A transactions. So, we continue to invest in the team, which is good so that we don't make sure none of this falls to the cutting room floor that we don't want to. And then we've deliberately tried to be a little bit more pragmatic about opportunities that make a lot of sense from a capital standpoint. But, where us controlling the business is not the right answer for those entrepreneurs. So, we've made two investments thus far, both sort of wildly different. Examples where, quite frankly, I think in the Sightline case, it is better for us to be a capital partner and a partnering guidance than it is for us to control that business. It's a massive market. They've got a great opportunity to win share. And so, that's sort of the ventures angle that we're taking on this is we can lend expertise. We can come up with commercial partnerships. But cycling the growth of that business by saying every one of your deals is going to come through us is not the right thing to do. So we widened the aperture quite a bit. We've actually maintained discipline in this environment. We try not to get overheated, regardless of the cost of capital on an opportunity. And the other thing, I'd say is there's always something we're very excited about. We just we're not going to jump without making sure, it's incredibly thought through and that it's going to answer every question that our investors would have as to how it's going to grow.

All right. That really makes sense. Thanks, guys.

Your next question comes from the line of Matt O'Neill with Goldman Sachs. Your line is open.

Yeah. Hi. Good morning, gentlemen. Thanks so much for taking my question here. I just have something you could maybe help us triangulate the $150 million in run rate gateway volumes that you talked about on this call, did you think about how that might compare to the $185 million? Presumably in between you guys have been converting very successfully a lot of that gateway volumes to end-to-end. So, is there any like same-store sales or apples-to-apples way of thinking about like how close that $150 million is back to what it would have been in 2019?

There really isn't. It's the right question to ask. I would just ask yourself is, a basket of – is a large basket of merchants that's predominantly hospitality-focused down 10% year-over-year as a result of the pandemic? Is it down 20%? Is it down 30%? All of those are really compelling arguments to be made. The point we're trying to make with that statistic is it has – we've been very hesitant to talk about our gateway volume, because it is so pandemic-impacted. And I think when you give a low number people start to say, oh, you eroded it all through end-to-end conversions and that's where all your growth is coming from. The reality is our end-to-end volume growth is coming in equal portions from a steady penetration of that gateway volume, and lots of new customers joining, albeit at depressed levels over the past year. So, choose your own adventure on this one you could say that, the gateway volume is 10% impacted, you could say it's 40% impacted. And looking out of market research, I could make compelling arguments for both of those things. But what it tells you is, there's still plenty to go. And it is not a flash in the pan. All of our end-to-end volume growth comes from this embedded base of customers. It's what we've been saying all along, which is that the gateway affords you a phenomenal sticky basket of really thoughtful partnerships in the form of ISVs and a nice Rolodex of customers. And those partnerships bring us both. They bring us gateway conversions, and they bring us net new wins. And then hopefully things like M&A and product innovation over time skew your growth towards more and more net new wins in the gateway volume contributes steadily. So that's sort of how we're looking at it. I think to say $150 billion would have looked like x in 2019 is probably not the right answer except that, I would guess it's reasonably impacted still in a month like March.

Yes. No, I fear that was probably going to be the answer. It's a couple of different points to try to triangulate around. I mean, from a high-level perspective would you say it leans more towards that down 10% or down 40% still or somewhere in the middle? Just anything anecdotal will be helpful as we think through like the remainder of the recovery on the hospitality side?

Yeah. This is entirely anecdotal, but I would say, it's down a lot more than that. If you think about the top half of the country in every hotel that sits there it's – those are down far more than 10% year-over-year.

Okay. Thanks a lot.

All right. There are no further questions at this time. I'll now hand the call back to Jared Isaacman.

Yeah. Thank you very much. I appreciate everyone dialing in today to discuss our Q1 earnings, and wish everyone well. Thank you.

Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect.